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The Safaniyah oil field in Saudi Arabia—the world’s largest—is producing at a reduced capacity after a ship’s anchor cut a main power cable, Reuters reports citing a knowledgeable source. An earlier report from MarketWatch quoted information from Energy Intelligence suggesting production at the filed had completely stopped, sparking worry about global heavy oil supply.

The worry was justified: with Venezuela sliding more deeply into chaos and with new U.S. sanctions reducing the flow of Venezuelan heavy crude to refineries, another heavy crude-producing field outage is exactly what the market does not need.

Safaniyah has a production capacity of over 1 million barrels of heavy crude: reason enough for the market to get excited or worried, or both. However, now that there is more information about the possible cause of the outage and its extent, this excitement or worry might calm down.

With or without a field outage, however, Saudi Arabia has once again played the star role in helping oil prices recoup some of the losses suffered late last year. The Kingdom has been reducing its production by more barrels than it was obliged to, leading an almost 800,000-bpd OPEC-wide production decline last month.

Saudi Arabia plans to reduce its crude oil production further, to 9.8 million bpd in March, Energy Minister Khalid al-Falih said in an interview for the Financial Times. This compares with more than 11 million bpd produced in November. Exports, Al-Falih said, will also fall substantially over this month and next, to an average of 6.9 million bpd from 8.2 million bpd in November. 

In the more immediate term, however, Brent jumped above US$65 a barrel after beginning today’s trade with a slide below this level. The credit was due the news of the partial production outage at Safaniyah, but earlier reports from this week about OPEC’s output cuts also helped.

At the time of writing, however, Brent crude was trading at US$64.84 a barrel, with WTI at US$54.59 a barrel.

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry. More

Comments

  • Nafiu - 15th Feb 2019 at 10:21am:
    With the US parliament eyeing the NOPEC law, all these cuts would soon become obsolete. OPEC must start accessing other pragmatic ways to balance global oil market economics.
  • Mamdouh Salameh - 15th Feb 2019 at 10:43am:
    Anything that affects Saudi oil production immediately impacts on oil prices. And while Saudi Arabia has already said that it plans to reduce its crude oil production further to 9.8 million barrels a day (mbd) in March in support of oil prices, it doesn’t like the outage to come as a result of an accident. Still, soon Safaniya will be back in production.

    Safaniya with estimated production of 1.1 million barrels a day (mbd) and the onshore Ghawar oilfield the world's largest with an estimated production of 5 mbd account for more than 61% of Saudi oil production. Saudi Arabia says Safaniya has remaining recoverable reserves of 32 billion barrels (bb) while Ghawar has remaing recoverable reserves of 46 bb.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • William Edwards - 15th Feb 2019 at 2:19pm:
    You note that Saudi Arabia plans to reduce its crude oil production further, to 9.8 million bpd in March. Do you have any information that tells you whether the announced 500 MB/D additional drop in Saudi output in March was because Aramco is turning away tankers that wanted oil? Or is it possible that the drop is because not enough tankers were nominated to allow all of the desired production to have a receiving vessel? March nominations are already in, so at this point Al Falih only has to look at the tabulation of customer nominations to determine the Aramco March output. It is an observation, not an operating signal.

    Can you confirm whether Aramco is demand limited rather than overtly limiting supply in March? The price impact of a demand limitation is down, not up.
  • Frank Foley - 16th Feb 2019 at 8:02am:
    Strange that's never happened before and now happens the week after Saudi oil shipments to the US hit a 20 year low. Weird coincidence.
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